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Health Care Reform is here. How will it affect you?

The health care reform signed into law on March 23, 2010 brought about major changes that will affect both employers and individuals. Here are the highlights that we believe will be of importance to our clients:

Changes Relating to Universal Coverage

For Individuals

  • Beginning in 2014, non-exempt individuals must maintain minimum coverage or pay a penalty. Exemptions are available for low-income individuals or for religious reasons. The penalty for an adult is $95 in 2014, $325 for 2015 and $695 for 2016. Uninsured individuals under the age of 18 will be subject to the penalties at one-half the rate of an adult. The total household penalty will not exceed $2,085.
  • Beginning in 2014, tax credits will be available for certain lower-income individuals and families that are not eligible for Medicaid, employer-sponsored insurance, or other acceptable coverage. These individuals would be required to purchase coverage through one of the newly created State Insurance Exchanges in order to obtain the credits. A “cost-sharing subsidy” would also be available to low income individuals to help purchase insurance.


For Employers

  • Large employers (greater than 50 employees) will be subject to penalties for not offering coverage, offering unaffordable coverage, or if coverage consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60% (employee pays more than 40% of cost of coverage). This is effective for tax years beginning after December 31, 2013.
  • Large employers may also be subject to penalties for offering minimum essential coverage under an employer sponsored plan if that employee has already purchased health insurance coverage through one of the newly-created State Insurance Exchanges and the employee has received a premium tax credit or cost sharing reduction.
  • Beginning in 2014, employers offering coverage through an eligible plan and paying a portion of that coverage must provide qualified employees with a voucher whose value could be applied to the purchase of insurance through the State Insurance Exchange. The value of the voucher would be equal to the dollar value of the employer contribution to the employer offered plan. Qualified employees are those that do not participate in the employer plan and meet certain income requirements.
  • Effective in 2010, a tax credit is available for qualified small employers who purchase health insurance for their employees. A qualified small employer is one that has no more than 25 full-time equivalent employees who have annual full-time equivalent wages that average no more than $50,000.
  • Effective on the enactment date, employer provided plans must provide coverage for the child of an employee who has not attained age 27 as of the end of the tax year.

Revenue Raisers

Excise tax on high-cost employer-sponsored health coverage

  • Beginning in 2018, a 40% nondeductible excise tax will be placed on insurance companies and plan administrators for any health coverage plan to the extent that the annual premiums exceed $10,200 for single coverage or $27,500 for family coverage.
  • The tax will apply to self-insured and group plans, but individual plans will be exempt. Stand-alone dental and vision plans will be disregarded when applying the tax.
  • The tax will be levied on the insurance companies. Employers would be required to issue information returns (similar to a 1098/1099) to insurers indicating the amount subject to the excise tax.
  • Employers will also have new responsibility to report the value of the benefit provided by them for each employee’s health insurance coverage on the employee’s annual form W-2.

Additional Hospital Insurance Tax

  • Beginning in 2013, the Medicare tax rate would be increased from 1.45% to 2.35% on an individual earning more than $200,000 ($250,000 for married filing jointly). These figures are not indexed.

Surtax on Unearned Income

  • Beginning in 2013 a 3.8% tax called the Unearned Income Medicare Contribution will be placed on net investment income of a taxpayer earning over $200,000 ($250,000 married filing joint). Net investment income consists of interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (capital gains-not property held in a trade or business).

Changes to FSAs, HRAs and MSAs

  • Beginning in 2013, contributions to FSAs will be limited to $2,500 per year
  • Beginning in 2011, the cost of over-the-counter medicine could not be reimbursed through a health FSA or HRA. In addition, the cost of over-the-counter medicine could not be reimbursed on a tax-free basis through an HSA or MSA.
  • The additional tax on non-qualified HSA or MSA withdrawals would be increased from 10% to 20%. This is effective in 2011.

Modified threshold for claiming medical expense deductions

  • Beginning in 2013, the adjusted gross income threshold for claiming the itemized deduction for medical expenses will be increased from 7.5% to 10%. In essence, no itemized deduction will be available until medical expenses exceed 10% of adjusted gross income.
  • The 7.5% threshold will continue through 2016 for individuals age 65 and older.

Industry-specific tax increases

  • Beginning in 2013, executive pay of health insurance providers will be capped at $500,000 per year. Any compensation paid above that will not be deductible.
  • Beginning in 2011, pharmaceutical manufacturers will have to pay an annual flat fee that will be allocated across the industry according to market share. The flat fee will range from $2.5 billion in 2011 to $4.1 billion in 2018.
  • Manufacturers or importers of medical devices will have to pay a 2.3% tax on their sales
  • Beginning in 2014, health insurance providers will have to pay an annual flat fee that will be allocated across the industry according to market share. The flat fee will range from $8 billion in 2014 to $14.3 billion in 2018.
  • Tanning salons will have to pay a 10% excise tax on indoor tanning services

Expansion of information reporting

  • Businesses will have to begin issuing 1099s to corporate providers of property and services beginning in 2012.

Please don’t hesitate to contact us if you have any questions or wish to discuss how this will affect you or your business.

Jon Majkut, CPA

Majkut CPAs LTD

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